Financial Forecast: July 2023

by | Jul 20, 2023 | News

Alan Bergin, Fund Evaluation Group

Despite a notably steep “wall of worry,” including ongoing banking system strains, persistent inflationary pressures, and the most aggressive Federal Reserve (Fed) tightening campaign in four decades, performance across the financial markets in the second quarter appeared overwhelmingly positive. Domestic asset classes and sectors generally witnessed meaningfully stronger performance during the quarter than their international brethren, which likely reflects the U.S. economy’s relative resilience amid incrementally tighter monetary conditions.

For the most part, equity markets are completely discounting any risk of an economic recession. However, U.S. equity market performance in 2023 has been heavily concentrated. Over 75% of this year’s market gains are concentrated in the ten largest companies in the market, mostly in the information technology sector. Additionally, small capitalization equities, albeit posting positive performance, lagged behind their larger capitalization counterparts meaningfully.

Fixed Income investments struggled during the quarter as the Fed surprised markets with statements about keeping current interest rate levels higher for longer than previously expected with the possibility of additional interest rate increases. For the first time in a few years, money market yields (commonly above 5%) are greater than inflation (3.0%). Investors have been taking advantage of the attractive yields and money market fund assets now sit at an all-time high of $5.7 trillion.


Alan Bergin is the Senior Vice President of Fund Evaluation Group in Dallas, TX, the Foundation’s consulting firm.